Sanction searching is an essential part of business protection for insurance brokers. Financial crime is a key focus for the Financial Conduct Authority (FCA) in the UK and brokers without proper sanction searching procedures in place may find themselves in a difficult position with the regulator – and potentially facing criminal penalties. For those in the insurance industry, sanction searching is essential and needs to be carefully factored in to internal procedures.
What sanctions are involved?
These are financial sanctions against existing or potential clients. Financial sanctions orders are imposed by the government and can be applied to businesses or individuals – even to other governments. They prohibit transactions from being carried out with the “target” of the financial sanctions order. Where there is a financial sanctions order in place there are penalties for those who don’t comply with it - unless the firm has authorisation from the Office of Financial Sanctions Implementation or the appropriate licence.
What does the FCA expect from insurance brokers?
The FCA has said “We…expect your systems and controls to mitigate the risk of financial crime to include those that enable you to meet financial sanctions obligations.” So, there is an obligation on firms to check whether there is a financial sanctions order in place and to ensure that it is not breached. In some situations even giving basic advice to a firm that is subject to one of these orders could be problematic. The FCA has said that ensuring compliance with financial sanction orders is likely to require different processes to be put in place than may currently exist for money laundering. This is mainly because compliance with sanctions means that it’s necessary to look at the recipients of any payments and whether payments have come from a legitimate source.
What are the penalties for not complying?
The responsibility for ensuring that clients are not subject to a financial sanctions order lies with insurance brokers and so there is a requirement to be proactive in finding this information out. It is a criminal offence not to comply with a financial sanctions order currently in place and this could result in prison time and/or a fine for any broker that doesn’t take the appropriate steps to be sure.
How to identify a financial sanctions order
Her Majesties Treasury (HMT) maintains a list of those who are the target of a financial sanctions order and it’s crucial to check potential clients and existing clients against this list. The list is known as the UK Consolidated Financial Sanctions List and is regularly updated. It’s important that new clients are checked against this list but also that existing client lists are screened against the list after each new update by HMT. This can be done manually or via an automated financial sanctions checking facility such as that available via the British Insurance Brokers’ Association.
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